tv Nightly Business Report PBS June 30, 2014 6:30pm-7:01pm PDT
this is "nightly business report" with tyler mathisen. >> recall crisis. general motors calls back another eight million cars related to the faulty ignition switches and says it will take a massive charge in the second quarter. this on the same day it outlines compensation for victims. decision day. the supreme court hands down rulings on two important issues for business. unions and health care. taking stock. investors close the books on the month, quarter and the first half with the s & p 500 notching the second best quarter gain since 2009. we have all that and more tonight. it's "nightly business report" for monday, june 30th. first half of the year is already over. good evening, everybody. i'm in tofor tyler mathisen aga.
>> we begin tonight with general motors and its widening safety crisis. the automaker stunned consumers and investors today announcing another huge recall and this one involves more fatalities. gm is recalling over eight million vehicles, all in the u.s., after defective parts linked to another three crash-related fatalities. now this brings the total number of recalls to 28 million vehicles worldwide. just for this year. now on top of that, gm also said it would increase the second quarter charge to earnings to $1.2 billion to help pay for all those recalls. the surprising news came on the same day that gm laid out the plans to compensate survivors and the families of another 13 people who were killed in crashes related to those faulty switches. investors sold on the news. gm shares fell nearly 1%. joining us now to talk about all of this, phil lebeau who is
covering the gm cross-ice fris day one. and also with us, collin langdon from ubs. so, phil, let me begin with you. you are just a few weeks ago the ceo of gm was saying that she thought that they were coming towards the end of this whole recall crisis. and now this. this is a big one. so what does this mean for her credibility? but also more importantly, what does this mean for the credibility of general metors? >> it means they're not clear to clearing out the potential cases related to ignitions, related to other quality problems and ultimately what this does is it calls into question the quality control at general motors. now this may be the last massive recall, suzy. but at some point, people are going to say when does it end? and there is no way of predicting that as we know from today's recalls. >> what do you by this that, collin? when do you think it ends? what about the pricetag they're putting on it so far?
could the charges they're taking against earning goes even higher, do you think? >> i think if you look at the company earlier this month, they indicated by q-2 they have a better grip on the recall situation. i think there is very logical time here for the announcement. so some areas it's not too surprising. i think the size of the charge is a bit larger than many people anticipated. it could go up. based on comments from the company earlier this month, it would take until the end of the quarter to get through the pipeline of potential issues. i think it's lower from here on out. >> you know, collin, you must still be feeling pretty good about general motors. i saw the latest report today. you're still confirming your buy on gm stock. why is that? >> yeah, i mean i think once you get these recall issues behind the company, the valuation here is very compelling. i think if you go into the second half of the year you'll have a pretty good market share story as they ram up up
production of the new pickup trucks. i do think, you know, getting the recall behind is key event. so the victim's compensation fund announcement, hopefully this will be the final major recall announcement we see from gm. it's positive in terms of getting it past the company and moving on to, you know, moving forward for the company. >> phil, i want to be careful how i word this question because obviously safety is very important. and especially to gm right now. but they recalled, what, 28 million cars so far this year. are we to the point now where maybe they're overdoing it? >> well, there's no doubt. when you look at the 54 recalls from general motors this year, a number of them are very ticky tack minor things that ordinarily would have been handled at the service bull ten. however, there are a number of substantial recalls amongst those 28 million that involve potentially deadly defects or in some cases are deadly defects. so you had to be careful about mao you look at it.
it's a huge number, bill. there's no doubt about that. any time you have a company recalling 28 million vehicles, it's going to get a lot of attention. there are some in these recalls that are clearly initiated because the frederal government is looking at them so closely. >> collin, we've been talking about red flags for gm. the government still investigating for any criminal charges of general motors. if there are any criminal charges brought against general motors for any of the employees, how you would react to that? would that change your view on general motors, the company and the stock? >> to be honest, we anticipate there will be a criminal penalty. you look at the toyota recall, there was a $1.2 billion penalty. that will take several years to come to that final settlement. i think it is likely and we should anticipate something in the future. >> all right. gentlemen, stay. there we have more to talk about. we mentioned general motors gave more details today on how it
plans to pay millions of dollars to settle those ignition switch cases. but for some, the automaker's offer may not be enough. more phil lebeau, he talked to the man in charge of the compensation fund. watch. >> attorney ken fineberg admits money is no substitute for a life that's been lost or tragically altered by a crash involving a defective gm vehicle. still, he's putting a price on how much the automaker will pay victims for their pain and suffering. what does the individual victim, whether it's a death claim, a physical injury claim, what did that person -- what would that person have made over a lifetime but for this horrible accident? what about noneconomic, pain and suffering? the individual cases vary from case to case to case. >> fineberg says there will be no cap on settlement awards those killed in gm models will get at least $1 million. those injured could get at least
$25,000. with claims paid out in 90 to 180 days depending on the complexity of the case. >> i took the best i could from everybody's submission to me and this protocol is mine and mine alone. >> fineberg met with the families two of victims after announcing the compensation fund. the birth mother of a 16-year-old killed in a 2005 chevy cobalt says she'll likely pass on the payoff and instead sue gm for punitive damage that's will be costlier for the automaker. >> if dollars and cents is what they're focused on before and maybe focused on again in the future, you know, that will send a message environmenter to do this again to anyone else. >> gm says the fund shows it's taking responsibility for at least 13 deaths linked with faulty ignition switches. but attorneys suing gm say it doesn't go far enough. >> you have a significant punitive component here. in other words, not only is gm at fault for what happened with these victims, but there could be punitive damages awarded
because of the egregious nature of their conduct. >> the gm victim fund will start processing claims on august 1st and by the end of the year, general motors is hoping the fund will resolve 90%st cases involving people who were killed or injured in defective gm cars. >> phil, i mean this is a -- could be a quagmire. but if anybody can do it, it's ken fineberg. he made a whole career of dealing with the heshg leeian funds. >> he said let me give you examples, general motors is optimistic that when you look at ken fineberg's track record, in the past when he's done this, whether it's with bp or to 9/11, about 90%st cases are very solved this way. that is what general motors is banking on. they would love to clear up most of the case this is way and avoid the uncertainty and cost of going to court. >> collin, what do you by this
that? i'm sure you're running numbers and doing analysis on the potential liability for general motors. and ken fineberg sounds like he really wants to be fair about all. this this could really go to court and end up with a lot of money. is that what you see? what are your numbers telling you? >> yeah, one thing you have to realize is that gm does have bankruptcy protection for many claims. that's something they take they will have to consider if they do go to court. their chances, you know, they have to prove that senior management at gm is in the bankruptcy and that may be a hard claim. i think there's a good chance they'll settle a lot of this out. when i look at i, we're estimating in our numbers about a $300 million cost to gm. that's about a third the size of the civil settlement that toyota incurred. they're about a third of the numberst vehicles on a relative basis specific to the ignition recall issue. >> collin, before we let you go, you know, this is a horrible situation that they face and
it's very, very expensive, obviously, are you surprised the stock hasn't fallen more than it has and what do you think of it right now? >> i think that today it's down less than 1% on some pretty bad news. i think it gets a sense of how low sentiment is in the name and that is a buying opportunity for investors. obviously a lot of negative news is priced in. i think the company and seen your manage. is handling it as best as they can. i think as we head into the second half of the year there's clearly some upside to the stock as they kind of get past thish u. >> collin langdon and phil lebeau, thank you both for joining us. beyond gm to wall street now, stocks ended this last trading day in june mixed after data showed the pace of business activity in june in the midwest dipped more than expected. and contracts to buy previously owned homes hit an eight-month high in may. by the closing fwoel day, the dow fell 25 points. the nasdaq rose by 10 and the s&p 500 was off just by a fraction.
but they all posted sol lid gains for the just completed second quarter. the dow was up 2% and both the nasdaq and the s & p 500 rose by nearly 5%. >> today was decision day at highest court in the land. as the u.s. supreme court wrapped up its current session with a handful of major rulings. in two of the most closely watched by the business community, the justices sided with some employers over contraception issues and against unions on some fees. hampton pierson was there and has more on what it all means. >> for the second time in recent years, a ruling on obama care filled the supreme court plaza with demonstrators. this time the clash was over birth control versus religious freedom. today the court ruled closely held companies have a religious right to opt out of the general health care law requirement that companies provide contraceptive
coverage for employees. the owners of oklahoma retail giant hobby lobby with 600 stores and 13,000 employees took the lead on behalf of 50 for profit corporation seeking a religious base exemption from the health care law. even the attorney believes this is a narrow ruling. >> we think today's decision was very careful. the majority was careful to say this would not decide other kinds of cases, other kinds of options that employers might have. and they were right to keep the focus where it belongs which is on the green family and their religious freedom. >> at the white house, a pledge from the administration to begin looking for alternatives. >> they will, of course, respect the supreme court ruling and we'll continue to look for ways to improve american's health by helping women have more, not less, say over the personal health decisions that affect them and their families. >> a second ruling was a setback for organized labor.
it focused on efforts by the service employees international union to compel illinois health care workers to pay union dues. in a narrowly crafted decision, the part time public employees who brought the lawsuit could not be forced to pay dues or join the union. experts say it is a blow to labor efforts to organize home health care workers and other independent contractors. >> this case wasn't huge setback for unions, it was a real obstacle to them moving forward. they really had an agenda to try to expand into the nontraditional areas like home health care workers. >> the supreme court justices may be gone for the summer. but their hobby lobby ruling puts obama care back in play for congress. republicans praising to day's decision as a win for religious freedom for small business owners, democrats vowing to continue their fight for reproductive freedom for women. at the supreme court, i'm
hampton pierson for "nightly business report." the supreme court declined to consider an appeal from a trustee looking to sue some of the world's biggest banks on behalf of victims of the ponzy scheme orchestrated by bernie madoff and allen stanford. they ignored signs of the massive scam but the high court ruled that he lacked the legal standing to represent thousands of victims in those lawsuits. still ahead, health care stocks had a good run in the first half. but will the rest of the year be a different story? that's coming up.
a big victory for federal and state regulators that accuse french back bmp of violating u.s. sanctions. the bank agreed to pay nearly $9 billion and plead guilty to criminal charges of conspiracy and falsifying business records after performing transactions with iran, cuba and sudan. looking to turn around a troubled agency, president obama today nominated bob mcdonald, a west point graduate and former ceo of proctor & gamble to be the new veterans affairs secretary. certainly the job will not be easy for mcdonald. the department is plagued bypassive treatment delays, nd vept veterans hospitals forcing the last secretary to resign. this nomination, of course, must still be proved by the senate. also washington today, some tough words from president obama on immigration reform. he said he can no longer wait
for congressional republicans to act. so he's going it alone. >> in this situation, the failure of house republicans to pass a darn bill is bad for our security. it's bad for our economy. and it's bad for our future. >> the president said he will use executive action to deal with the system that he calls "broken." john harwood joins uz from was washington. what exactly can the president do and why is he going this route? why is he taking this stance? >> the reason is that he was re-elected with overwhelming support from hispanic voters who expect some results. and the president's been pushing this bill. he got a bipartisan bill through the senate in 2013. but it hasn't moved in the house. the speaker has indicated that there isn't going to be a movement on that issue in the house. and so the president's trying to look at whatever executive actions he can take to assist especially the 11 million people
who are already here in this country without documentation. >> so no action in the house this year or out of congress overall on immigration reform s this something that business should be happy about or should they be concerned? >> i don't think they can know yet. the president hasn't spelled out what executive actions he can take. bill, i think that until we have legislation reflecting some compromise between the two parties, business is not going to have the kind of certainty they want for their purposes of their hiring and making sure that their own businesses operate legally. that is going to take legislation the only question is when can that happen? it's clearly not going to be in 2014. >> john harwood, thank you tonight from the white house. elsewhere, large cap health care stocks easily outperform the broader markets during the first half of the year. even though their explosive growth may be slowing, bertha coombs takes a look at the outlook for health care stocks the second half of the year. >> the affordable care act may be shaking up health care.
but for investors, health care stocks have been a good ride. the health care exchange traded funds seen double digit gains to all time highs led by bioteches in the first half. but thoz bioteu those biotech g game with volatility. they are taking pause on those stocks. >> biotech experienced a 30% peek to trough drop. that say roller coaster ride that not many investors want to participate in including us. >> biotech gained 19% year to date but mid cap hospital stocks are not far behind. up 16%. health insurers, pharmaceuticals and medical device makers seen double digit gain. all outperforming the overall market. gregory says hospital shuz continue to see strong growth with less volatility. he favors mental health in patient providers like universal health that ch is seeing more demand. >> for behavioralal health, you
have a supply and demand imbalance. there is supply to meet 50% of demand beyond the sickening numbers we hear about school violence. there is demand pickup from the affordable care act. >> for insurers, the aca ment new demand but analysts say it's coming at a time when medical costs are expected to rise due to more usage and new high cost drugs. >> they've been pricing well above cost trend and that's created a cushion. i still think we're going to have some of that cushion left in second quarter. i'm not worried about the quarter. i think it's going to start diminishing over the next 6 to 12 months which means they're going to have raise that's are not as strong. >> they expect insurers to outperform in the second half but maybe not enough to impress momentum investors that moved into the sectors the last few years and that could be the stock's biggest hurdle. bertha coombs, "nightly business report". >> to read more about the
prognosisst health care stocks, head to our website. and active investors builds a position in bank of new york melon. that's where we begin the market focus. shares of the bank jumped on news that nelson's hedge fund has taken a stake in the company. the position is valued at just over $1 billion. now the move could lead to a shake-up at the bank as the stock performance has been lagging and operating expenses have been higher. the stock was up nearly 3.5% today to $37.48. lin energy saw the shares rise after news that oil and natural gas company will bias sets from devon energy for more thanned 2dz billion. they will sell the noncore gas rich properties in numerous states in an effort to focus on the oil assets and cut down debt. that sent shares of lin up 1% to $32.35. shares of devon fell a fraction. and tree health foods is
buying flagstone foods a private label healthy snack maker for $860 billion. they make trail mix and dry fruit and tree house says the acquisition will raise the annual revenue by 750 doctmillin the first year. shares of tree house up a fraction to $80 and change. >> investors got a chance to react to a new buy dietze treatment n this case regulators game the thumbs up to the inhaleable insulin. it's been three years since the fda first asked for additional studies. the stock popped 9.5% as a result of that approval to $10.96. and a recent study conducted by facebook has some people outraged. the social media giant admits it secretly manipulated the newser's news feeds to see how emotions can be spread on social media. the company argue that's users can sent it to participate in
that when they agreed to its terms and service. still, the facebook researcher who led the study posted a public apology on his page. today's shares of facebook fell to $67.29. and private equity firm blackstone is ramping up the footprint in the hedge fund business now. according to reports, the company will fund several teams of traders to place a small number of big but risky bets at a time when many hedge funds are shying away from the types of wagers. this multistrategy hedge fund is pitched to wealthy clients in turn. shares of blackstone down slightly today to close to $33.44. and coming up on "nightly business report," think technology plays a critical role in the financial markets today? well, wait until you see what the future may hold. that's coming up.
look at the calendar. tomorrow is july 1st. start of the new fiscal year and a lot of u.s. states and because of better finances and the number of them, residents will see some taxes getting cut, believe it or not. california drivers will see a 3.a% decline per gallon in their gasoline tax. connecticut residents will no long ver to pay sales tax on prescription drugs. indiana and rhode island will lower their corporate tax rates. people in businesses in idaho buying software through the cloud will no long ver to pay sales tax on those programs. and maryland is pumping up the tax credits related to cyber
security. biotechnology and research development, all this to entice more companies to relocate to the old lion state. and finally tonight, the major averages just wrapped up a strong first half of the year. and while a lot of analysts are giving their market outlook for the next six months, we're taking a longer view with a look at what the markets and trading might look like way into the future. dominick chew has our story. >> the seeds for wall street's next evolution are already being sewn all the way across the country. >> there might be nonconventional players sitting here that could cause a huge disruption to wall street as we know it today. >> and for good reason. if you think computers are mission critical for markets now, just wait. >> the future, 25 years from now, will be settled by having this infinite depths of historical information. >> the concept is called fast
data which takes boundless amounts of information and lets users make real time decisions. imagine knowing all at once manufacturing activity in china, oil output in saudi arabia, inflation data in the u.s., plus a million other factors and then generating a trade based on the combined outcome. >> 25 years from now you won't see man and machine come together in some way. it's going to be very interesting to watch. >> leaders on wall street say they need to embrace concepts like fast data to stay ahead. >> if you don't change from within, you'll find a group of, you know, 20-year-olds, smart 20-year-olds will suddenly create something that will be disruptive. >> disruptive technology will also impact the nature of exchanges. the concept of exchanges is simple. bring buyers and sellers together to get deals done. technology and smart enpressures are finding ways of putting networks together almost overnight. >> some say new technology will
change the face of the financial markets. >> in terms of trading floors, they're there. they're really not there to support the trading business. overwhelming majority of business will be done in a different way. >> whether trading takes place on a wall street trading floor or not, there is no doubt the level of investing sow fi sophistication is going to grow. >> and that is "nightly business report" for tonight. thanks so much for watching. >> have a great evening, everybody. we'll see you tomorrow.
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